Wednesday, April 3, 2019

Fiscal federalism, discipline must for higher growth

Effective implementation of fiscal federalism and maintaining fiscal discipline are crucial for Nepal to achieve higher economic growth, as per the Asian Development Bank (ADB).
Releasing the latest ADB Nepal Macroeconomic Update ADB’s country director for Nepal Mukhtor Khamudkhanov said that the outlook is for a stable growth on the back of strong domestic demand, fuelled by a larger budget allocation to sub-national governments and accelerated post-earthquake reconstruction. "However, challenges to smooth implementation of fiscal federalism and maintaining fiscal discipline at large could pose potential risks to the outlook.”
According to Khamudkhanov, Nepal has the potential to achieve and sustain higher growth rate over a long period of time if these challenges are addressed.
The ADB has projected the country’s economy to grow at 6.2 per cent in the ongoing fiscal year while it has anticipated that the economy will grow at 6.3 per cent in the next fiscal year. The Asian Development Bank’s growth forecast is slightly lower that the growth rate of 6.5 per cent projected by the International Monetary Fund. Meanwhile, an optimistic government expects to achieve an economic growth rate of over 7 per cent. Finance Minister Dr Yuba Raj Khatiwada has - in the budget for the current fiscal year - forecast a growth rate of 8 per cent when he presented the budget for the current fiscal year to the Parliament.
The ADB update has also projected the agriculture sector to grow from 2.8 per cent in fiscal year 2018-19 to 4.5 per cent in 2019-20 due to a good monsoon that is expected to boost paddy production to 5.5 million tonnes, a rise of 8.4 per cent from the previous year. Likewise, the industry sector is expected to expand by 7.1 per cent in 2018-19 buoyed by improved electricity supply and efforts to improve the investment climate while the services sector will likely grow by 6.4 per cent with the expansion of wholesale and retail trade, hotels and restaurants, and financial intermediation, the update reads.
Meanwhile, ADB’s Nepal Macroeconomic Update has projected inflation to rise to 4.4 per cent in 2018-19 from 4.2 per cent in 2017-18, partly reflecting somewhat higher inflation expected in India, stable oil prices, and higher government expenditures under the new federal structure.
Likewise, revenue collection has primarily increased on higher import growth and an improvement of the tax system while the budget as of mid-January 2019 is in surplus by Rs 173.3 billion owing to strong revenue growth and a marginal slowdown in recurrent expenses, the update reads. "Though capital expenditure has surged in the fiscal year through mid-February, its execution stands at only 22.5 per cent. This could again lead to a spending spree in the last month of the fiscal year, undermining the quality of capital projects."
ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. In 2018, it made commitments of new loans and grants amounting to $21.6 billion. Established in 1966, it is owned by 68 members—49 from the region.

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